I would like to thank the Economic and Monetary Affairs Committee and Legal
Affairs Committees and in particular their rapporteurs, Mr. Rasmussen and Mr
Lehne, for the work done in the preparation of these two reports.

Few would have predicted one year ago that the situation in financial markets
would be as serious as it is today. And the effects of the crisis will continue
to be felt for some time. It started with reckless selling of mortgages in the
US, promoted by banks and others who did not care about lending standards
because they could offload the loans to others through securitisation.

Credit rating agencies then gave respectability to these high risk products
by assigning low credit default risk to them. Financial institutions around the
world bought up these products without it seems doing any serious risk
assessment of their own.

In the light of events over the past year it has been incredible to see how
little understanding senior managers of financial institutions had of the risk
they were taking on board. No doubt the size of the profits that were rolling in
blunted serious risk analysis. Supervisors seemed to have no better idea of the
risk in these hugely complex products. Things were so sliced up, diced up and
repackaged that no one knew where the real risk was. One observer referred some
months ago to this unfolding crisis as like watching a train crash in slow
motion. Last week the crisis went into hyper speed.

The concerted actions of the world's major central banks and the announcement
of the support measures by the US authorities have restored some calm to
markets. We must welcome this given the extreme situation faced by regulators. I
also welcome that the US authorities have shown recognition of the need to
address in their proposals similar assets held by some non US financial
institutions.

One thing we can be thankful for in Europe is that we have not seen the same
scale of destruction as has happened in the US. Although banks in the EU have
been suffering from a similar lack of confidence in lending to each other there
has not been anything on the same scale as experienced in the US. But no one is
out of the woods yet. There are difficult trading conditions ahead. The downturn
in economies will have its effects. Vigilance and transparency are key if
confidence if to be restored in markets. At EU level we must continue to improve
our supervisory arrangements for cross border supervisory financial
institutions. There is a window of opportunity that must not be missed.

All of this leads me to believe we are going to have a different financial
services sector when this is all over and we will have a different regulatory
framework as well. If moral hazard cannot be shown to work then the taxpayer
cannot be expected to pick up the bill for the excess and irresponsible risk
taking of private institutions.

The ultimate shape of whatever new regulatory approach will be adopted will
be designed over the coming period as the lessons from this crisis and the
appropriate response become clearer. We need to continue to work closely with
other regulatory authorities and to the extent possible dovetail our
responses

As many of you will be aware we have already been taking action. For a year
now the Commission has been working on a detailed roadmap agreed by the Council
of Finance Ministers and endorsed by the European Council. We have been refining
our response as the turmoil unfolds.

We have already taken measures to improve convergence and cooperation between
supervisors. A new Memorandum of understanding was agreed by EU Supervisory
authorities, Finance Ministers and Central Banks setting out common principles
including the establishment of Cross Border Stability groups. This is now being
implemented. We have been reviewing enhancements of deposit Guarantee schemes.
A special group which will report by the end of this year has been set up to
look at the pro cyclicality effects of current instruments including Basel 2 and
IFRS. In close cooperation with the Financial Stability forum the IASB has set
up an advisory pannel on fair valuation. Work on off balance sheet items is also
underway in the IASB. Industry has come forward with valuable data which
improves transparency for regulators of the securitisation market. The
Commission is pressing industry to refine this information so hat transparency
for regulators is improved.

In the light of these activities, and others I will refer to, it should come
as no surprise to members when I say that I can welcome many of the points set
out in Mr Rasmussen's report. What is important is that we are able to identify
the key measures we should take now and get them implemented.

As I said earlier the market turmoil exposed failings in the risk management
of large financial institutions. It also highlighted a number of areas of
regulatory weakness. It is on these areas that regulatory attention must now be
focused. Mr Rasmussen has flagged in his report many of the most pressing areas:
conflicts of interest in Credit Rating Agencies, the need for improvement in the
valuation of illiquid assets and the misalignment of incentives in the
'originate and distribute' model.

Over the past year I have kept members informed, both in Plenary and
particularly the ECON Committee, of the work we have been doing on improving
capital requirements in banks as well as my ideas for regulating Credit Rating
Agencies. We all agree I believe on the need for a strengthening of capital
requirements and an obligation for transparency and due diligence in regards to
structured products. We have been working on changes to the Capital Requirement
Directive which will improve the management of large exposures, improve quality
of capital through harmonising treatment of hybrid capital. We have also been
looking at strengthening the supervision of cross banking groups. In the next
few weeks I will be proposing to the Commission two separate regulatory measures
to deal with these and other issues. Firstly an amendment to the capital
requirements Directive and secondly a regulation on Credit Rating Agencies. I
look forward to the support of the European Parliament for these proposals which
are very much in line with what you call for in this report.

Hedge funds and private equity feature in both reports. We have had some
interesting exchanges over the years about the roles of Hedge Funds and Private
Equity. One thing I believe we can agree on is that they were not the cause of
the current turmoil. It has turned out that it was the regulated sector that had
been allowed to run amok with little understood securitisation vehicles.

I don't believe it is necessary at this stage to tar Hedge Funds and Private
Equity with the same brush as we use for the regulated sector. The issues
relating to the current turmoil are different. Let us not forget that these
funds are regulated in Member States. Hedge fund and private equity managers are
authorised and supervised entities throughout Europe. They are subject to the
same market abuse disciplines as other participants in financial markets. They
are bound by similar transparency and consultation obligations when investing in
public companies. Exposure of the banking sector to Hedge Funds and Private
Equity is subject to the Capital Requirements Directive.

This does not mean that we are turning a blind eye to hedge funds and private
equity. As these business models evolve and their role in financial markets
changes, regulators around the world need to remain vigilant. The industries
themselves must assume all the responsibilities that accompany a prominent role
in European and global financial markets. Several recent market initiatives
indicate that this message is understood. Our role should be to monitor closely
these and other developments in the market and be ready to respond if and when
necessary.

I welcome the constructive suggestions for supporting the functioning of the
single market. I would just like to mention at this stage that there is
considerable work underway in the Commission on private placement and venture
capital.

I agree with Mr Lehne, that a sufficient degree of transparency is an
essential condition to investor confidence. It is therefore indispensable if we
want financial markets to function effectively.

The report sets out a list of transparency rules that apply today to the
different players in the financial markets in the EU. To my mind what is
important is that the market is provided with a sufficient degree of clear
information, that is useful. We need to find the balance between the need for
confidentiality of the proprietary information of investment vehicles against
the legitimate needs of investors, counterparties, regulators and investee
firms.

I am therefore pleased that the report puts an emphasis on the need to
analyse the impact of the existing EU provisions and of additional Member States
rules in this field before one embarks on introducing any new legislation.

The Commission has already been very active in this field. We have held
extensive consultations in the context of our shareholders' rights initiative
where we looked at a number of issues that are touched upon in the report
– stock lending, for example, and the question of the identification of
shareholders.

Furthermore, we have recently published a call for tender for an outside
study that will look at the implementation, in Member States, of the
Transparency Directive. This study should be available next year and will form
the basis for a general evaluation of the directive including the notification
thresholds.

As members will recall, the Commission adopted in spring this year a
Communication setting out its policy approach to Sovereign Wealth Funds. We had
come to the conclusion that these measures were appropriate but also sufficient
to address the issues that currently are being discussed. This approach was
endorsed by the European Council: I see though that the Legal Affairs Committee
does not entirely share this assessment. Some brief remarks

Firstly, we should acknowledge that Hedge funds and Private Equity in many
senses are not unique – other institutional investors have similar
objectives and nowadays use similar techniques. If in that situation we imposed
special obligations on Hedge funds and Private Equity, this would result in
discrimination of these categories of investors.

Secondly, we should not make the mistake to perceive all activities of hedge
funds as a threat to the market but we should also be aware of the positive
effects that their activities have. Let me be clear the EU economy is going to
need massive investment in the time ahead: Without SWFs; Private Equity and the
like Europe's recovery from today's turmoil will be all the slower

Thirdly, I agree that certain techniques, such as stock lending and the use
of derivatives do pose challenges to established models of governance. This is
an area we in conjunction with national supervisors will be giving close
attention to in the time ahead.

In conclusion, these two reports will be significant contributions to our
ongoing reflection. I commend members for these reports. The Commission will
examine your recommendations and report back to you as envisaged in the
Framework agreement. We remain fully committed to responding to this crisis with
the measures necessary to restore confidence and stability.